1
EXHIBIT 13
REPORT OF MANAGEMENT
Management is responsible for the preparation and integrity of the accompanying
financial statements and all other financial information appearing in this
Annual Report on Form 10-K. The financial statements have been prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances. The other financial information in this Annual Report on Form
10-K is consistent with the financial statements.
Management is responsible for developing and maintaining cost-effective
internal accounting control. Internal control effectiveness is supported
throughout the Company with written communication of policies and procedures,
careful selection and training of personnel, and audits by a professional staff
of internal auditors. The Company's control environment is further enhanced
through a formal Code of Conduct that sets standards of professionalism and
integrity for employees.
The financial statements have been audited by the auditors Coopers & Lybrand
L.L.P. The Company engages them to render an independent professional opinion
based upon an examination conducted in accordance with generally accepted
auditing standards.
The Audit Committee of the Board of Directors is composed solely of
non-employee directors and is responsible for oversight of management's
internal control and financial reporting responsibilities. The Audit Committee
is also responsible for recommending to the Board the independent accounting
firm to be used for the coming year. The Audit Committee meets periodically
with management, the internal auditors, and privately with the independent
auditors to review auditing, accounting, internal control and financial
reporting matters.
/s/ DAVID R. ZIMMER /s/ MARK J. MACGUIDWIN /s/ THOMAS G. HOOPER
------------------- ---------------------- ---------------------
David R. Zimmer Mark J. MacGuidwin Thomas G. Hooper
President and Chief Vice President-Finance and Treasurer and
Executive Officer Chief Financial Officer Controller
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REPORT OF INDEPENDENT ACCOUNTANTS
Stockholders and Board of Directors Core Industries Inc
We have audited the accompanying consolidated balance sheets of Core Industries
Inc and subsidiaries as of August 31, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended August 31, 1996. Our audits also
included the financial statement schedule listed in the index at Item 14 for
each of the three years in the period ended August 31, 1996. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Core Industries
Inc and subsidiaries as of August 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1996, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
- ---------------------------
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
October 9, 1996
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CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended August 31
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
Net sales $230,157,000 $187,897,000 $166,260,000
Cost of sales, exclusive of depreciation and amortization $149,772,000 $121,088,000 $111,294,000
Depreciation and amortization 5,670,000 4,364,000 4,004,000
Selling, general and administrative expenses 51,743,000 43,126,000 35,333,000
Interest expense 3,815,000 3,355,000 3,820,000
Other income (1,283,000) (929,000) (2,402,000)
------------ ------------ ------------
$209,717,000 $171,004,000 $152,049,000
------------ ------------ ------------
Earnings from continuing operations before taxes on income $ 20,440,000 $ 16,893,000 $ 14,211,000
Taxes on income 7,500,000 6,200,000 5,002,000
------------ ------------ ------------
Earnings from continuing operations $ 12,940,000 $ 10,693,000 $ 9,209,000
Discontinued operations (net of income tax):
Income (loss) from discontinued operations - ($365,000) $ 797,000
Estimated loss on disposal - (6,500,000)
------------ ------------ ------------
Income (loss) from discontinued operations - ($6,865,000) $ 797,000
------------ ------------ ------------
Net earnings $ 12,940,000 $ 3,828,000 $ 10,006,000
============ ============ ============
Net earnings (loss) per share:
Continuing operations $ 1.24 $ 1.09 $ 0.94
Discontinued operations - (0.70) 0.08
------------ ------------ ------------
Net earnings $ 1.24 $ 0.39 $ 1.02
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
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CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31
--------------------------------
1996 1995
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 572,000 $ 1,135,000
Accounts receivable, less collection
allowances of $1,260,000 in 1996
and $1,020,000 in 1995 56,923,000 44,214,000
Inventories 51,935,000 41,276,000
Prepaid expenses 1,199,000 953,000
Deferred taxes on income 2,167,000 5,447,000
Net assets held for disposition - 16,089,000
------------ ------------
TOTAL CURRENT ASSETS $112,796,000 $109,114,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements $ 896,000 $ 896,000
Buildings 17,552,000 17,746,000
Machinery and equipment 43,173,000 36,532,000
------------ ------------
Total $ 61,621,000 $ 55,174,000
Less accumulated depreciation 35,715,000 32,332,000
------------ ------------
TOTAL PROPERTY, PLANT AND
EQUIPMENT $ 25,906,000 $ 22,842,000
------------ ------------
OTHER ASSETS:
Excess of cost over net assets
of companies acquired $ 22,251,000 $ 6,774,000
Investment in real estate partnership 1,273,000 1,323,000
Notes receivable 4,311,000 1,500,000
Prepaid pensions and other 6,412,000 5,490,000
------------ ------------
TOTAL OTHER ASSETS $ 34,247,000 $ 15,087,000
------------ ------------
$172,949,000 $147,043,000
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
August 31
--------------------------------
1996 1995
------------ ------------
CURRENT LIABILITIES:
Notes payable $ 5,100,000 $ 787,000
Accounts payable 13,016,000 7,581,000
Accrued payroll and other expenses 15,721,000 13,181,000
Dividends payable 643,000 589,000
Taxes on income 1,090,000 2,041,000
Long-term debt due within one year 4,610,000 4,610,000
------------ ------------
TOTAL CURRENT LIABILITIES $ 40,180,000 $ 28,789,000
------------ ------------
LONG-TERM DEBT,
less amount due within one year 24,520,000 32,609,000
DEFERRED TAXES ON INCOME 2,250,000 1,690,000
ACCRUED EMPLOYEE BENEFITS 3,355,000 2,942,000
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1:
Authorized - 100,000 shares
Issued - none
Common stock, par value $1:
Authorized - 20,000,000 shares
Issued - 11,261,499 shares in 1996
11,237,172 shares in 1995 $ 11,261,000 $ 11,237,000
Additional paid-in capital 8,570,000 999,000
Retained earnings 84,922,000 74,499,000
Cumulative translation adjustments 517,000 976,000
Treasury stock (552,877 shares in 1996
and 1,410,160 in 1995) - at cost (2,626,000) (6,698,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY $102,644,000 $ 81,013,000
------------ ------------
$172,949,000 $147,043,000
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
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CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Cumulative
Common Paid-In Retained Translation Treasury
Stock Capital Earnings Adjustments Stock
----- ---------- -------- ------------ --------
Balance, August 31, 1993 $11,208,000 $ 728,000 $65,372,000 $ 356,000 ($6,698,000)
Net earnings 10,006,000
Cash dividends declared,
$.24 per share (2,353,000)
Exercise of stock options 4,500 19,000
Incentive compensation awards 6,500 63,000
Foreign currency adjustments 305,000
----------- ---------- ----------- --------- -----------
Balance, August 31, 1994 $11,219,000 $ 810,000 $73,025,000 $ 661,000 ($6,698,000)
Net earnings 3,828,000
Cash dividends declared,
$.24 per share (2,354,000)
Incentive compensation awards 18,000 189,000
Foreign currency adjustments 315,000
----------- ---------- ----------- --------- -----------
Balance, August 31, 1995 $11,237,000 $ 999,000 $74,499,000 $ 976,000 ($6,698,000)
Net earnings 12,940,000
Cash dividends declared,
$.24 per share (2,517,000)
Exercise of stock options 24,000 69,000
Treasury shares issued
re: acquisition 7,502,000 4,072,000
Foreign currency adjustments (459,000)
----------- ---------- ----------- --------- -----------
Balance, August 31, 1996 $11,261,000 $8,570,000 $84,922,000 $ 517,000 ($2,626,000)
=========== ========== =========== ========= ===========
The accompanying notes are an integral part of the consolidated
financial statements.
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CORE INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended August 31
-------------------------------------------------
1996 1995 1994
------------ ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 12,940,000 $ 3,828,000 $10,006,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation $ 4,900,000 $ 3,953,000 $ 3,794,000
Amortization 770,000 412,000 211,000
Loss from discontinued operations - 10,000,000 -
Discontinued operations - 365,000 (797,000)
Net gain on sale of division - - (915,000)
(Increase) decrease in assets:
Accounts receivable (7,206,000) (2,828,000) (1,345,000)
Inventories (2,665,000) (4,205,000) (1,969,000)
Prepaid expenses (215,000) (322,000) 580,000
Taxes on income (951,000) 514,000 935,000
Deferred taxes on income 3,840,000 (3,500,000) 800,000
Increase (decrease) in liabilities:
Accounts payable 2,397,000 (1,947,000) (200,000)
Accrued payroll and other expenses 1,472,000 2,208,000 1,147,000
Other non-current assets and liabilities (1,131,000) (225,000) 113,000
------------ ------------ -----------
TOTAL ADJUSTMENTS $ 1,211,000 $ 4,425,000 $ 2,354,000
------------ ------------ -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 14,151,000 $ 8,253,000 $12,360,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($5,396,000) ($4,988,000) ($4,242,000)
Net proceeds from sale of divisions - - 9,816,000
Acquisition of businesses ($15,643,000) (4,325,000) (2,510,000)
Discontinued operations 13,008,000 (1,728,000) 4,407,000
Other 10,000 333,000 381,000
------------ ------------ -----------
NET CASH FROM (USED IN) INVESTING ACTIVITIES ($8,021,000) ($10,708,000) $ 7,852,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on short-term notes $ 3,913,000 $ 300,000 ($900,000)
Reductions in long-term debt (8,089,000) (8,999,000) (2,967,000)
Cash dividends paid (2,517,000) (2,354,000) (2,353,000)
------------ ------------ -----------
NET CASH USED IN FINANCING
ACTIVITIES ($6,693,000) ($11,053,000) ($6,220,000)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (563,000) (13,508,000) 13,992,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD $ 1,135,000 $ 14,643,000 $ 651,000
------------ ------------ -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 572,000 $ 1,135,000 $14,643,000
============ ============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 4,133,000 $ 3,512,000 $ 3,757,000
============ ============ ===========
Income taxes paid $ 4,800,000 $ 5,500,000 $ 3,200,000
============ ============ ===========
The accompanying notes are an integral part of the consolidated
financial statements.
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CORE INDUSTRIES INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
1. PRINCIPLES OF REPORTING AND ACCOUNTING
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Intercompany profits, transactions and balances have been eliminated.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Inventories - Approximately 91% and 88% of inventories at August 31,
1996 and 1995, respectively, are valued at the lower of cost or market on a
first-in, first-out (FIFO) basis. Other inventories are valued at cost on a
last-in, first-out (LIFO) basis. If all inventories were valued on a FIFO
basis, inventories would have been $1,613,000 and $1,562,000 higher than
reported at August 31, 1996 and 1995, respectively.
Following is the detail of inventories:
1996 1995
----------- -----------
Raw materials and supplies $24,399,000 $17,734,000
Work in process 7,864,000 8,225,000
Finished goods 19,672,000 15,317,000
----------- -----------
Total $51,935,000 $41,276,000
=========== ===========
Property, Plant and Equipment - Items of property, plant and equipment,
including significant improvements to existing facilities and leasehold
improvements, are recorded at cost. Expenditures for maintenance and
repairs are charged to operations in the year incurred. Long-term lease
obligations incurred in connection with industrial development revenue bond
financing have been capitalized at the total principal amount of the
obligations. Depreciation is computed principally on an accelerated basis.
Excess of Cost Over Net Assets of Companies Acquired - The excess of
total cost over net assets of companies acquired is being amortized over
either 15 or 40 years except for $2,048,000 relating to acquisitions prior
to October 31, 1970 which is not being amortized. Amortization expense
amounted to $584,000 in 1996, $227,000 in 1995 and $84,000 in 1994.
Accumulated amortization amounted to $2,734,000 and $2,150,000 at August 31,
1996 and 1995, respectively.
Investment in Real Estate Partnership - The Company has a minority
interest in a partnership formed for the purpose of owning an office
building, a portion of which the Company leases for its corporate offices.
Rents paid were $445,000 in 1996, $382,000 in 1995 and $346,000 in 1994.
The investment is accounted for according to the equity method.
Revenue Recognition - Revenue from sales of products is recognized at
the time of shipment. Revenue from long-term construction contracts is
recognized using the percentage-of-completion method.
Earnings Per Common Share are computed by dividing net earnings by the
weighted average shares outstanding (10,453,360 shares in 1996, 9,809,041
shares in 1995, and 9,800,135 shares in 1994). The number of common stock
equivalents was not significant.
F-7
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Foreign Currency Translation - Assets and liabilities of certain
foreign subsidiaries whose functional currencies are other than the U.S.
dollar are translated at year-end rates of exchange. Income and expense
items are translated at average exchange rates for the year. The resulting
translation adjustments are recorded directly into a separate component of
stockholders' equity.
Reclassifications - Certain reclassifications have been made to conform prior
years' data to the current year presentation.
Cash Flow Statement - In connection with the acquisition of CMB
Industries and Davis Filters in the second quarter of fiscal 1996, the
Company issued 857,283 shares of its common stock from treasury valued at
approximately $11,574,000 and issued notes payable totaling $7,400,000.
2. DEBT AND COMMITMENTS
The Company has a $20,000,000 unsecured line of credit with a major
domestic bank at interest rates on an as-offered basis, which have been less
than the prime rate. There was $15,300,000 available under this facility at
August 31, 1996.
Long-term debt consists of the following:
1996 1995
----------- -----------
Notes payable $22,330,000 $30,440,000
Industrial development revenue bonds 6,800,000 6,779,000
----------- -----------
Total $29,130,000 $37,219,000
Portion due within one year 4,610,000 4,610,000
----------- -----------
Total $24,520,000 $32,609,000
=========== ===========
Notes payable include three unsecured promissory notes to insurance
companies: one 9.8%, $4,000,000 note and two 10.02% notes aggregating
$18,000,000. The notes require semi-annual interest payments with repayment
of principal in 10 equal annual installments which commenced August 1993 for
the 9.8% note and commenced May 1995 for the 10.02% notes. The other note
payable requires repayment in three annual equal installments. At August
31, 1996, letters of credit amounting to $5,500,000 were outstanding.
Industrial development revenue bonds mature principally in 2006 and
2013 and include $5,000,000 related to a 15-year loan agreement with a
variable interest rate entered into during 1991. Interest rates on the
bonds change based on prevailing market rates which averaged 3.79% as of
August 31, 1996.
Scheduled principal repayments of long-term debt are $4,610,000 in 1997
and 1998, $4,110,000 in 1999, and $3,000,000 in the two years ending 2000
and 2001.
Certain of the Company's loan agreements contain restrictive covenants
pertaining to the maintenance of working capital and tangible net worth.
Under the most restrictive covenant, retained earnings of $27,295,000 were
available for the payment of cash dividends at August 31, 1996.
The estimated fair value of the notes payable at August 31, 1996 was
approximately $23,800,000. The fair value was estimated based on the
discounted amounts of future cash flows at the current note rates assuming
all prepayment options were exercised. The estimated fair value of
industrial development revenue bonds is the book value of $6,800,000.
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3. TAXES ON INCOME
Income taxes on a continuing operations basis are as follows:
1996 1995 1994
---------- ---------- ----------
Current:
Federal $2,560,000 $5,250,000 $3,654,000
State and local 1,100,000 950,000 548,000
---------- ---------- ----------
Total $3,660,000 $6,200,000 $4,202,000
Deferred 3,840,000 0 800,000
---------- ---------- ----------
Total taxes on income $7,500,000 $6,200,000 $5,002,000
========== ========== ==========
Federal income taxes include foreign income taxes of $93,000 in 1996,
($17,000) in 1995, and ($44,000) in 1994. The foreign pretax earnings
(loss) amounted to $500,000 in 1996, ($400,000) in 1995, and ($199,000) in
1994.
A reconciliation of income taxes computed using the U.S. federal
statutory rate to the provision for federal income taxes follows:
1996 1995 1994
---------- ---------- ----------
Computed at U.S. statutory rate $7,154,000 $5,911,000 $4,974,000
State and local taxes 385,000 616,000 356,000
Goodwill amortization and write-offs 129,000 62,000 62,000
Foreign income taxes (82,000) 123,000 26,000
Research tax credit (45,000) (353,000) (235,000)
Other (41,000) (159,000) (181,000)
---------- ---------- ----------
Total taxes on income $7,500,000 $6,200,000 $5,002,000
========== ========== ==========
Deferred income taxes result from temporary differences in the
recognition of income and expenses for financial reporting and tax purposes.
The source and deferred tax effect of these differences is as follows:
1996 1995 1994
--------- --------- ---------
Disposed operations $3,131,000 - -
Depreciation (96,000) $(185,000) $(229,000)
Employee benefits 374,000 144,000 496,000
Inventory related 69,000 (60,000) 67,000
Accounts receivable allowances (148,000) (84,000) -
Tax credit carryforwards - - 567,000
Acquisition 304,000 - -
Other 206,000 185,000 (101,000)
---------- --------- ---------
Total deferred $3,840,000 $ 0 $ 800,000
========== ========== =========
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Deferred tax (assets) liabilities are comprised of the following:
1996 1995
---------- ----------
Discontinued operations ($3,823,000)
Inventory related ($901,000) (693,000)
Accrued expenses (153,000) (324,000)
Accounts receivable allowances (239,000) (358,000)
Other (365,000) -
----------- ----------
Gross deferred tax assets ($1,658,000) ($5,198,000)
----------- ----------
Depreciation $928,000 $ 871,000
Employee benefits 520,000 296,000
Other 293,000 274,000
----------- ----------
Gross deferred tax liabilities $ 1,741,000 $1,441,000
----------- ----------
Net deferred tax liabilities (assets) $ 83,000 ($3,757,000)
=========== ==========
4. RETIREMENT PLANS
PENSION PLANS
The Company has three defined benefit retirement plans covering a
portion of its domestic employees. The plans' benefits are based principally
on years of credited service and on participants' compensation. The plans'
assets consist principally of marketable fixed income and equity securities.
Net pension credit from the Company's defined benefit plans included the
following components:
1996 1995 1994
----------- ----------- -----------
Service cost $ 309,000 $ 162,000 $ 187,000
Interest on projected benefit obligations 728,000 548,000 544,000
Actual return on plan assets (1,322,000) (1,963,000) (4,000)
Net amortization and deferral (129,000) 719,000 (1,225,000)
----------- ----------- ----------
Net pension credit ($ 414,000) ($ 534,000) ($ 498,000)
=========== =========== ==========
F-10
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The following table sets forth the funded status of the defined benefit
plans at August 31:
1996 1995
------------------------ -----------
Assets Accumulated Assets
Exceed Benefits Exceed
Accumulated Exceed Accumulated
Benefits Assets Benefits
----------- ----------- -----------
Vested benefit obligation $ 7,074,000 $ 1,607,000 $ 6,860,000
=========== =========== ===========
Accumulated benefit obligation $ 7,363,000 $ 1,712,000 $ 7,208,000
=========== =========== ===========
Plan assets at fair value $13,594,000 $ 1,469,000 $12,989,000
Projected benefit obligation (8,267,000) (2,304,000) (8,126,000)
----------- ----------- -----------
Assets in excess of (less
than) projected benefit
obligation $ 5,327,000 ($ 835,000) $ 4,863,000
Unrecognized net (gain) loss:
From excess funding at
implementation of SFAS 87 683,000 776,000
Other (665,000) 440,000 (901,000)
----------- ----------- -----------
Prepaid pension cost
(or pension liability) $ 5,345,000 ($ 395,000) $ 4,738,000
=========== =========== ===========
The company-sponsored pension plans generally provide benefits based on
average salary levels and years of service. The projected unit credit
funding method was used along with discount rates of 7.75% in 1996 and 1995.
The assumed rate of return on assets was 9%, and the assumed rate of increase
in future compensation levels was 5%. The primary reason for increases in
plan assets and benefit obligations relates to the Company assuming a defined
benefit plan in connection with the acquisition of CMB Industries.
The Company also contributes certain amounts per labor hour to
multi-employer union pension funds. Such contributions amounted to $528,000
in 1996, $389,000 in 1995, and $427,000 in 1994.
F-11
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OTHER POSTRETIREMENT BENEFIT PLANS
Certain divisions and subsidiaries of the Company provide health care
and life insurance benefits for retirees which are, depending on the type of
plan, either contributory or non-contributory. Approximately 31% of
employees may become eligible for these benefits.
Net periodic postretirement benefit cost included the following components:
1996 1995 1994
-------- -------- --------
Service cost - benefits attributed
to service during the period $ 48,000 $ 42,000 $ 49,000
Interest cost on accumulated
postretirement benefit obligation 274,000 263,000 260,000
-------- -------- --------
Net periodic postretirement benefit cost $322,000 $305,000 $309,000
======== ======== ========
The Company's postretirement plans are not funded. The status of the
plans at August 31 follows:
1996 1995
---------- -----------
Accumulated postretirement benefit
obligation
Retirees $2,635,000 $2,729,000
Fully eligible and other
active participants 709,000 612,000
---------- ----------
Total $3,344,000 $3,341,000
Unrecognized loss (361,000) (399,000)
---------- ----------
Total accrued postretirement benefits $2,983,000 $2,942,000
========== ==========
For measurement purposes, a 11.2% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1996. The rate
was assumed to decrease gradually to 6.0% through the year 2008 and remain
constant thereafter. The assumptions for the health care cost trend rate has
a significant effect on the amount of the obligation and periodic cost
reported. An increase in the assumed health care cost trend rates by 1% in
each year would increase the accumulated postretirement benefit obligation as
of August 31, 1996 by approximately 3.7% and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for the
year then ended by 3.2%.
The weighted-average discount rates used in determining the accumulated
postretirement benefit obligation was 7.75% as of August 31, 1996 and August
31, 1995.
Cash expenditures for postretirement benefits were $282,000 in 1996,
$270,000 in 1995, and $216,000 in 1994.
5. LEASES
The Company leases certain office and production facilities and
equipment under agreements expiring from 1997 through 2006. Several of the
lease commitments contain renewal and/or purchase options exercisable at the
end of the lease terms.
F-12
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The following is a schedule of future minimum rental payments required
under operating leases for continuing operations that have remaining terms in
excess of one year as of August 31, 1996:
Year ending August 31:
1997 $ 720,000
1998 700,000
1999 600,000
2000 520,000
2001 450,000
Later years 1,070,000
----------
Total minimum payments required $4,060,000
==========
The rental expense for all operating leases was $850,000, $560,000, and
$610,000 for the years ended August 31, 1996, 1995 and 1994, respectively.
6. STOCK OPTIONS AND AWARDS
The Company's 1993 Performance Incentive Plan approved during 1994
permits the grant of up to 490,000 shares of Company common stock for stock
options, stock appreciation rights and restricted stock to key employees of
the Company. Options for 222,500 shares ($13.75 to $14.56 per share) were
granted during 1996 and options for 229,000 shares ($13.31 to $13.56 per
share) were granted during 1994. With 13,000 options expiring in 1996 and
1995, 438,500 shares were outstanding at August 31, 1996. Vesting of most of
the shares over the first three years following grant is dependent upon
appreciating stock market valuation of Core stock. If the Company's stock
fails to reach and maintain for defined periods of time those specified
levels, vesting is delayed until 9 1/2 years after grant.
Under prior employee stock option plans, options were outstanding as of
August 31, 1996, for 136,200 shares ($5.25 to $10.94 per share) with
expiration dates through 2002. Options for 2,000 and 4,500 shares were
exercised in 1994 and options for 8,700, 5,000 and 8,900 shares expired in
1996, 1995, and 1994, respectively.
The 1991 and 1988 Director Discounted Stock Option Plans are for
non-employee directors of the Company. In accordance with the Plans,
directors may elect to receive discounted stock options in lieu of director
fees payable in cash, with the aggregate discounts equal to the cash fees
forfeited. Under the Plan, 300,000 shares were reserved for issuance of
non-qualified stock options at either 50% or 75% of market value at the date
of grant. Stock options for 12,941 shares ($9.56 per share), and 28,128
shares ($7.3594) were granted in 1996 and 1995, respectively. Options for
45,027 shares were exercised in 1996. 173,317 options were outstanding as of
August 31, 1996, with 81,656 shares reserved for future grants.
Pursuant to incentive compensation programs, the Company in 1995 and
1994 awarded 18,620 and 6,594 shares of common stock, respectively, to key
employees of the Company.
7. PREFERRED SHARE PURCHASE RIGHTS
In September 1987, the Board of Directors declared a dividend
distribution of one Preferred Share Purchase Right for each outstanding share
of common stock. Each right will entitle shareholders to purchase one
two-hundredth of a share of a new series of junior participating preferred
stock at an exercise price of $50. The rights will only be exercisable 30
days after a person or group acquires 20% or more of the Company's common
stock or commences a tender offer to acquire 30% or more of the common
stock. The Company has reserved 48,876 shares of its preferred stock for the
outstanding rights. If the Company is acquired in a merger or other business
combination after the rights become exercisable, each right will entitle the
holder to purchase common stock
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of the acquiring company having a market value of twice the exercise
price of the right. The rights may be redeemed by the Company at a price of
$0.02 per right up to 30 days after a 20% position has been acquired or
completion of a tender offer for 30% or more of common stock. The rights
will expire on September 28, 1997.
8. ACQUISITIONS
During fiscal 1996, the Company acquired two companies. Effective
December 2, 1995, the Company acquired the common stock of CMB Industries, a
privately held producer of specialty valves, with annual revenues of
approximately $30 million. Effective January 1, 1996, the Company purchased
Davis Filters, Ltd., a manufacturer of pipeline strainers located near
Birmingham, England, with annual sales of approximately $1 million. The
total cost of these acquisitions included a combination of cash, debt
assumptions and notes payable issued totaling approximately $15.6 million
plus 857,283 shares of the Company's common stock, which stock was valued at
$13.50 per share.
During fiscal 1995, the Company purchased two companies. Core's Amprobe
Instrument Division purchased Promax Industries, Inc., a manufacturer of
refrigerant recycling and recovery products for the heating, ventilating, and
air conditioning (HVAC) industry. Core's Fluid Control Group purchased Oil
and Gas Specialties, Inc. (OGASCO) which designs and fabricates skid-mounted
pipeline metering systems and fabricated strainers. The total cost of the
above acquisitions was approximately $4,800,000, including a short-term note
payable with a balance due of $487,000 at August 31, 1995.
During fiscal 1994, the Company purchased the grain drill business of
Best Manufacturing (Farm Equipment Group), and Hendrix Steel & Fabricating,
Inc. (Fluid Control Group), a fabricator of strainers and other specialty
flow control products. The total cost of these acquisitions was
approximately $3,370,000, including a five year note payable with a balance
due of $440,000 at August 31, 1995.
These acquisitions were accounted for as purchases, and accordingly, the
operating results of the acquired businesses have been included in the
Company's financial statements from their respective dates of acquisition.
The following unaudited pro forma summary reflects the Company's consolidated
results from continuing operations as if the above-noted acquisitions had
been acquired as of the beginning of fiscal 1995. This pro forma summary
includes adjustments to give effect to amortization of goodwill, interest
expense on acquisition debt, together with related income tax effects. The
pro forma results are not necessarily indicative of what would have occurred
if the acquisition had been in effect for the entire year, nor are they
intended to be a projection of future results.
(Unaudited)
Year Ended August 31
-------------------------
1996 1995
------------ -----------
Net Sales $237,357,000 $218.600,000
============ ============
Earnings from continuing operations $ 12,937,000 $ 10,443,000
============ ============
Net earnings per share $1.21 $0.98
===== =====
9. SALE OF DIVISIONS
Effective September 23, 1993, the Company sold its Du-Al Manufacturing
Division, a manufacturer of front end loaders, back hoes and other equipment
sold to the construction and farm industries. Effective May 31, 1994, the
Company sold its Pioneer Industries Division, a manufacturer of metal doors
and frames for the construction industry. The total sale price of these
transactions was approximately $12,000,000, consisting of cash and a
promissory note for $1,500,000. The businesses sold had approximately
$9,000,000 of sales in FY 1994 prior to disposition.
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Other income for the year ended August 31, 1994 includes pretax gain of
$1,475,000 (total of $.09 per share) related to the sale of the Du-Al
Division.
10. DISCONTINUED OPERATIONS
On October 6, 1995, the Company adopted a formal plan to divest its
wholly-owned electronics-related subsidiary, Cherokee International, Inc.
and its subsidiaries (Cherokee) effective August 31, 1995. Cherokee
represented a separate line of business producing electronic power supplies
sold to distinct customers and has been accounted for as a discontinued
operation. Appropriate provisions were recorded in the fourth quarter of
fiscal 1995 for (a) the estimated losses for the discontinued operation
through its expected disposal date, (b) reduction of assets to their net
realizable values, and (c) the anticipated liabilities related to the
disposal. The total provision amounted to $6,500,000, net of income tax
benefit of $3,500,000.
Selected information related to Cherokee's operations prior to
discontinuation follows:
1995 1994
----------- -----------
Sales $44,669,000 $53,193,000
Pretax income (loss) (285,000) 1,845,000
Income taxes 80,000 1,048,000
Net income (loss) (365,000) 797,000
Earnings (loss) per share (.04) .08
The net assets of the discontinued Cherokee operation held for sale were
included in the Balance Sheet as of August 31, 1995 under the caption "Net
Assets Held for Sale." In 1996 the net assets of the discontinued operation
were sold for cash and a long-term note receivable. It is anticipated that
the provision established in 1995 should be adequate.
11. CONTINGENCIES
The Company is a defendant in various lawsuits covering a wide range of
matters. In some of these pending lawsuits, the remedies sought or damages
claimed are substantial. The Company is vigorously defending against these
claims. While it is not possible to predict with certainty the ultimate
outcome of these lawsuits, management believes that resolution of these
matters will not have a material effect on the consolidated financial
position of the Company.
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12. PRODUCT SEGMENT INFORMATION
The Company groups its products and services into three segments.
Financial information by segment is summarized below (based upon continuing
operations). Assets and capital expenditures are also reported net of items
applicable to discontinued operations.
(In Thousands)
Earnings
Depreciation Before
Capital and Net Income
Assets Expenditures Amortization Sales Taxes
-------- ------------ ------------ -------- -------
Year ended August 31, 1996:
Fluid controls and
construction products $ 87,830 $3,722 $3,399 $115,497 $15,134
Test, measurement and control 38,029 912 1,156 69,131 8,015
Farm equipment 35,533 711 996 45,529 5,073
Corporate unallocated 11,557 51 119 - (3,966)
Interest expense - - - (3,816)
-------- ------ ------ -------- -------
Total $172,949 $5,396 $5,670 $230,157 $20,440
======== ====== ====== ======== =======
Year ended August 31, 1995:
Fluid controls and
construction products $ 49,951 $2,483 $2,404 $ 80,732 $10,766
Test, measurement and control 34,702 984 1,022 63,819 6,928
Farm equipment 38,239 1,571 813 43,346 6,075
Corporate unallocated 7,266 139 125 - (3,521)
Discontinued operations 16,089 - - - -
Interest expense - - - - (3,355)
-------- ------ ------ -------- -------
Total $146,247 $5,177 $4,364 $187,897 $16,893
======== ====== ====== ======== =======
Year ended August 31, 1994:
Fluid controls and
construction products $ 44,606 $1,610 $2,351 $ 78,745 $ 8,624
Test, measurement and control 26,627 1,512 833 49,229 5,328
Farm equipment 34,082 1,073 693 38,286 7,257
Corporate unallocated 21,112 115 127 - (3,178)
Discontinued operations 29,960
Interest expense - - - - (3,820)
-------- ------ ------ -------- -------
Total $156,387 $4,310 $4,004 $166,260 $14,211
======== ====== ====== ======== =======
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13. QUARTERLY SALES AND EARNINGS SUMMARY (UNAUDITED)
Continuing Operations Total
------------------------------------------ --------------------
Net
Net Net Earnings
Cost Net Earnings Earnings (Loss)
Net Sales of Sales Earnings Per Share (Loss) Per Share
--------- -------- -------- --------- -------- ---------
(In Thousands, except per share data)
- -----------------------------------------------------------------------------------
FISCAL 1996
First Quarter $ 46,437 $ 29,999 $ 2,410 $ .25 $ 2,410 $ .25
Second Quarter 58,322 38,173 2,862 .27 2,862 .27
Third Quarter 63,124 41,525 3,620 .34 3,620 .34
Fourth Quarter 62,274 40,075 4,048 .38 4,048 .38
-------- -------- ------- ----- ------- -----
Total Year $230,157 $149,772 $12,940 $1.24 $12,940 $1.24
======== ======== ======= ===== ======= =====
FISCAL 1995
First Quarter $ 43,187 $ 27,724 $ 2,250 $ .23 $ 2,021 $ .21
Second Quarter 44,819 28,745 2,316 .24 2,362 .24
Third Quarter 52,426 34,269 3,023 .30 3,133 .32
Fourth Quarter 47,465 30,350 3,104 .32 (3,688) (.38)
-------- -------- ------- ----- ------- -----
Total Year $187,897 $121,088 $10,693 $1.09 $ 3,828 $ .39
======== ======== ======= ===== ======= =====
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